A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

February 23, 2009

The Industrialization of Services

In the late 18th century, the Industrial Revolution started the transition from a manual-labor based economy towards an economy based on using technologies, tools and machines to significantly improve the manufacturing of physical goods. Over the next two hundred years we have seen the industrial sector of the economy achieve major improvements in the productivity and quality of manufacturing, ranging from very simple to highly complex physical objects.

A major step in that remarkable story of innovation occurred around thirty years ago. Before that time, most manufacturing plants were fairly inefficient by almost any contemporary measure, and were turning out products of varying quality. Then, driven by the huge success of Toyota and other companies around the world, the industrial sector and academia discovered the merits of applying engineering discipline as well as a holistic, systems-wide approach to manufacturing processes. Company after company embraced the Toyota Way, Six Sigma, Lean Production and similar methods in their manufacturing and logistics operations, which have brought the industrial sector of the economy to a whole new level of productivity and quality.

The rise of IT in the last several decades has enabled us to start applying technologies to the large and diverse world of services. In the beginning, computers were used primarily to perform calculations. In the 1970s, we started to make a lot of progress automating highly repetitive, back office tasks like processing financial transactions, inventory management and airline reservations. Then, a decade later, the personal computer enabled us to develop all kinds of productivity applications like word processing and spreadsheets. The 1990s brought us the Internet and World Wide Web, which introduced revolutionary ways of dealing with content, communications and commerce.

We now are reaching a major new milestone in applying IT to services with the advent of cloud computing. There are many definitions of cloud computing, all of them pretty much relating to the notion of xxx-as-a-service over the Internet, e.g., computing-as-a-service, storage-as-a-service, software-as-a-service, applications-as-a-service.

I prefer to think of cloud computing as offering all kinds of services-as-a-service - consumer services, business services, government services, health-care services, educational services and so on.

All these services obviously need more computing, storage, software and applications than ever before. But, the users of the services should not care or be directly exposed to these underlying capabilities unless they are IT professionals or application developers. You want everything virtualized, that is, hidden away from the users.

Most of all you want to virtualize complexity, so the users, many of whom will be accessing services from their mobile devices while on the move, can get what they want in as simple a way as possible. This is one of the biggest differences between cloud-based services and classic IT applications, whose intrinsic complexities, including the underlying hardware and software supporting them, are barely hidden from their users.

"The rise of the cloud is more than just another platform shift that gets geeks excited. It will undoubtedly transform the information technology (IT) industry, but it will also profoundly change the way people work and companies operate. It will allow digital technology to penetrate every nook and cranny of the economy and of society, creating some tricky political problems along the way."

The implications of digital technologies penetrating every nook and cranny of the economy and society are enormous. It means that the world’s digital and physical infrastructures are converging. In addition to billions of people walking around with mobile devices, just about everything can now be instrumented and made more intelligent with sensors - cars, appliances, medical equipment, roadways, pipelines, pharmaceuticals and livestock. It means that we can use real time information and services to help us understand the way the planet works in an attempt to make it more efficient and smarter.

Our IT infrastructures are nowhere near ready to handle this explosive growth of information and service. Much of IT, - including applications, data centers, systems management, and so on, - is way too ad-hoc and custom designed, sort of like manufacturing was decades ago prior to the transformational innovations introduced by Toyota and others.

Over the last two hundred years we have successfully industrialized the production of physical goods. It is now time to industrialize the production and consumption of services. To do so, and achieve the required orders of magnitude improvements in their productivity and quality, massive breakthroughs are required in all aspects of IT, as well as in the design and architecture of the services themselves.

I believe that this industrialization of services will turn out to be one of the key ingredients in whatever future historians end up calling the 21st century equivalent of the Industrial Revolution.